Oil and Gas
The successive episodes of violence and instability that have stunted the growth of Iraq’s oil production mean that the country remains a frontier in the global oil-supply economy, in terms both of rehabilitation and extension of existing production infrastructure and the potential for new finds, when exploration resumes in earnest. The degree to which Iraq has lacked modern production capability is illustrated by the fact that it was only in March 2014 that it regained its historical peak of production previously achieved in 1979 – an average of 3.5 million barrels per day (mbpd).
Iraq’s hydrocarbon reserves are enormous, and its past production does not reflect its actual production potential (section 2). The combination of its great geological potential and the persistent suppression of exploitation prompted the International Energy Agency (IEA) in 2012 to focus much of its flagship publication, World Energy Outlook, on Iraq (see Iraq Energy Outlook 2012). The thinking at the time may have been that the influx of foreign capital and expertise evident in a string of ambitious contracts proved the ability of the new Iraqi state to accommodate intensive production plans, a circumstance that had eluded Iraq for many years.
Having examined 46 major Iraqi fields, the IEA concludes that – if all proceeds according to the current schedules as stipulated in existing contracts – oil production capacity in Iraq could reach 14.6mbpd by 2020. The IEA’s central scenario, however, posits that oil production would be more likely to increase to approximately 6mbpd in 2020 and 8.3mbpd by 2035. These production increases are expected to be driven mainly by super-giant fields (with reserves of more than 5 billion barrels [bbbl]) in the south (section 2.2). These estimates formulated in 2012 have since been revised for reasons elaborated in this report and may be revised further in light of the current security situation (section 4).
Iraq also holds major gas reserves, even though its gas production lags considerably behind oil-production levels. According to estimates by Oil & Gas Journal and BP (formerly British Petroleum), Iraq’s proven dry natural-gas reserves in 2010 were 3.17 trillion cubic metres (m3). Though Iraq’s reserves are small compared to its neighbours such as Iran and Qatar and even Saudi Arabia, they are still enormous by global standards: the tenth largest in the world, more than those of Norway and the United Kingdom combined. Most proven reserves (71%) are in the well-explored southern region, which is where most of Iraq’s gas is produced from associated fields.
Another 9% is dome gas, mainly in the northern oilfield of Jambur, and the remaining 20% is free gas contained in nine gas fields located mainly in north-eastern Iraq. Among non-associated fields, only one is currently producing: the al-Anfal field, at about 5.7 million cubic metres (MCM) per day. After an (ultimately unsuccessful) earlier gas bidding round for three large non-associated fields, a new round commenced in October 2010 (oil and gas bidding rounds are discussed in detail in section 2.2.1.).
Natural gas production is important for electric power generation and industry, but much of the gas produced in associated fields is simply flared (burnt as waste) in the process of oil production. Flared gas in Iraq averaged at least 20MCM per day in 2010. This represents about 32% of total daily gas production. According to a report issued by the US National Oceanic and Atmospheric Administration (NOAA), Iraq flared the fourth-greatest volume of gas of any country in 2010. This is an economic waste, as natural gas could do much to improve the efficiency of electrical generation and increase oil revenues to the state, as Iraq, like many other Middle Eastern countries, produces electricity from oil, effectively paying a premium for electricity, as the revenues from the oil used for electrical generation are foregone.
In summary, Iraq’s ambition to expand its oil and gas output over the coming decades is not limited by the size of its hydrocarbon resources nor by the costs of production, which are among the lowest in the world. Rather, it is limited by the ability of the state to cooperate with industry to see scheduled investments through to completion, with all the security and political confidence that requires. Contracts and field-development plans to date (section 2.2.1.) do imply an extraordinary increase in production, but the way in which these plans evolve in practice will be determined by the speed at which impediments to investment and other production constraints are removed, clarity on the legal arrangements between Baghdad and the Kurdish Regional Government (KRG) is reached and security requirements are met – requirements which have so far been met only partially and whose permanence is in doubt.